Does the thought of estate planning cause anxiety? If yes, then you are in great company.
Estate planning can be one of the most intimidating, complex and emotionally charged financial needs a family faces together. There is no margin for error, as savers want to preserve their legacies and protect their families for future generations. And while money and emotions are always entangled with each other, those emotions intensify as people face their own mortality during the planning process – and often as they try to maximize long-term opportunity. Let’s reconsider the idea.
Even if everything else is calm and stable outside the confines of our lives and families, those stresses are still present. In fact, families must now piece together effective estate planning strategies amid the storm of political instability and tax law uncertainty. In this environment, families need creative and sophisticated strategies that stand the test of time, while also remaining flexible in the face of ongoing legislative and environmental changes.
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Tax changes are always on the ballot
Although it may seem difficult to keep track of the endless proposed changes discussed on Capitol Hill, there are some tax legislative changes that have a greater impact on your financial and estate plans.
The estate planning landscape has seen significant change over the past few years, as legislators respond to the ever-changing challenges and needs of Americans. An important change occurred through the Tax Cuts and Jobs Act of 2017. It increased the estate tax exemption from $5.6 million to $11.18 million, adjusted for inflation. In 2023, this amounts to $12.92 million per capita. For a married couple, this means that the estate tax (aka “death tax”) will not apply until their combined estate exceeds $25.84 million. As recently as 2008, the estate tax exemption was only $2 million per decedent (or $4 million per couple).
The recent passage of the SECURE Act 1.0 and 2.0 implemented changes to inherited IRAs, required minimum distributions (RMDs), trusts, and more. A significant change was the elimination of “stretch IRAs” for non-spousal beneficiaries (some exceptions apply). Under the PRE-SECURE Act law, an IRA owner’s child can take distributions over his or her lifetime, effectively reducing or delaying income taxes on those distributions. Under current law, they have to withdraw the entire account within 10 years of the death of the original account owner. True, this has led to an increase in converting traditional IRAs (tax-deferred) to Roth IRAs (tax-free) during the owner’s lifetime.
The 2024 presidential election is already heating up, and each party’s platform could have an impact on your estate planning. Each year, the President releases the administration’s budget plan, known as the Greenbook (it gets its name from its distinctive green cover), which includes proposed tax law changes. While not all of these proposals will pass, it’s important to pay attention to what the administration is thinking.
For example, the current Greenbook would eliminate certain grantor trusts, eliminate step-ups based on death and limit the annual gift tax exclusion to $50,000 per donor instead of $17,000 per donor. In fact, even without any Congressional action, the estate tax exemption is set to return to an estimated amount of $6.8 million to $7 million after 2025 ($5 million indexed for inflation since 2017).
This gives individuals only a few years to take advantage of the higher exemption unless the President and Congress agree to extend this provision. The expansion at the current level will depend on who controls the White House and Congress after the 2024 elections. When it comes to navigating these changes, strategic and advanced planning makes a big difference.
Creative strategies and advanced planning protect your legacy
Although these tax changes can be a challenge to deal with, they also present real opportunities for strategic planning. For example, estate tax exemption changes may motivate high net worth individuals to establish some type of grantor trust, such as a Spousal Lifetime Access Trust (SLAT). Another strategy, and one that works best in our current high-interest rate environment, is a Qualified Personal Residence Trust (QPRT). This involves gifting assets to a trust but allowing you to retain effective ownership for a period of time (for example, 10 years).
At the end of the term, the assets pass to the trust beneficiaries. By maintaining control for a period of time, the value of the gift becomes less than fair market value. Think of it like giving a gift at a discounted price. The ideal person is someone who has a family vacation home that they want to pass on to the next generation but are not ready to give up complete control.
Many tax-advantaged estate planning strategies involve giving up control of some of your money in order to keep it safe. After spending years accumulating wealth, it can be hard to trust the process enough to give up control. Especially during times of market turmoil, emotions are even higher, and individuals who are already seeing their account balances decline due to the markets and the economy may not necessarily want to make a difference by funding their trusts. Want to pay more money.
It’s important to think opportunistically about where your money is going and not panic just because the market is down. One way to calm the waters is to return to long-term planning – focus on the signal (for example, the market is rising steadily) and not on the noise (for example, daily market fluctuations).
be flexible and hardworking
When you’re going through the estate planning process, flexibility is important. You need to be clear about what your goals are and make sure your documents are drafted in a way that gives your future plan some flexibility to adjust to changes in those goals, or to external factors such as legislative changes. will provide.
One way is to provide comprehensive delivery standards in your documentation. This gives the trustee greater ability to make distributions as times and lives change.
Some other methods include granting powers of appointment, which allow the beneficiary some control over who receives the money in the future; naming a trust protector; to confer power to change the trustee; or providing reimbursement provisions for grantor trusts, which allow the trust to make distributions back to the grantor to cover tax liabilities paid by the grantor on trust income. The laws will continue to change as Congress and the IRS continue to look at individuals taking advantage of tax loopholes.
It is also important to know that many actions and changes proposed or discussed may never come to fruition. This is where it is important to work closely with a trusted advisor who will know when to step in and when not to, and can filter out what is “media noise” and what really needs attention.
Striking a balance between being proactive in adjusting your estate plan, but not being overly reactive to the news you hear, is important.
Many people think of estate planning as a one-time event, but that couldn’t be further from the truth. It is important to double-check all your property documents on a regular basis to ensure that they are not only in line with your overall goals, but also compliant with current laws. Staying informed and in touch with your financial advisor will put you in a better position to protect your inheritance and those of your loved ones now and in the future.
Marshall Financial Group, Inc. (“Marshall Financial”) is an SEC-registered investment advisor with its principal place of business in Doylestown, Pennsylvania. For additional information about Marshall Financial, please request our disclosure prospectus in Form ADV using the contact information provided here, or visit the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov, Please read the disclosure statement carefully.
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This article was written by our associate advisor and represents his views, not those of the Kiplinger editorial staff. You can check consultant records with seconds or together FINRA,
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